On October 12, 2000, Emergent filed its complaint alleging a violation
of Section 12 of the Securities Act of 1933 (First Claim for Relief),
Rule 10(b)5 (Second Claim for Relief), section 20 of the Securities &
Exchange Act of 1934 (Third Claim for Relief), common law fraud (Fourth
Claim for Relief), negligent misrepresentation (Fifth Claim for Relief)
and rescission (Sixth Claim for Relief) arising out of the purchase of
NETV Series C convertible Preferred Stock (the "Stock") in March 2000 in
a private placement of 166,667 shares undertaken by Emergent on the
representation (alleged by Emergent) that the amount to be raised by the
private placement of the stock was $20 million. Answers to the complaint
were filed and discovery undertaken.

The defendants' motion was heard and marked fully submitted on June
13, 2001.

On May 9, 2001, Emergent filed the Second Action, alleging a violation
of 10(b)5 arising out of a misrepresentation of an investment by
Stonepath in Brightstreet.com, Inc. ("Brightstreet"). A first amended
complaint was filed by Emergent on June 5, 2001, alleging the omission to
set forth material facts relating to prior activities and associations of
Panzo alleged to constitute a pattern of "pump and dump," as well as
control of Stonepath by Howard Appel ("Appel") who had been barred from
the securities industry by the National Association of Security Dealers
("NASD").

On June 20, 2001, Emergent moved to consolidate both actions. On July
9, 2001, the defendants in the Second Action moved pursuant to Rule
12(b)6 to dismiss the first amended complaint. Both of these motions were
marked fully submitted on August 15, 2001.

At the January 20 meeting, Panzo and Hansen also orally represented to
Waldron and Yun that to date NETV had invested approximately $17 million
in seven e-commerce companies. They represented that of the seven, the
largest investment by far was $14 million which NETV had paid for a 12%
equity interest in Brightstreet.

Panzo and Hansen gave Waldron and Yun a document entitled Net Value
Holdings, Smart Seed Capital (the "Brochure") which listed the seven
companies in which NETV had made investments. In the Brochure, NETV's
investment in Brightstreet for which it allegedly received a 12%
ownership interest, was represented to be $14 million.

In or about April 2001, during the course of discovery in 00 Civ.
7723, Emergent learned that while the representations made by defendants
as to what NETV had paid for its equity investment in six of the
companies was accurate, NETV's investment in (and payment to)
Brightstreet was $4 million or less, and not $14 million as represented
by defendants.

In its 1999 Form 10-K, filed on May 11, 2000, NETV stated that "the
amount of capital stock purchased" by NETV in Brightstreet was
$4,000,000" and not $14 million. Similarly in its 2000 Form 10-K, filed
on April 2, 2001, NETV stated that the "amount funded and advanced" by
NETV to Brightstreet was "$4,000,000," and not $14 million.

Panzo, Hansen and NETV did not reveal the prior activities of Panzo,
including his relationship with Appel. In August 1991, Appel was barred
from the securities industry for life by the NASD. In 1992 and 1993,
Panzo was employed as an executive vice president of HMA Investments, a
company in which Appel was a principal.

After Panzo left HMA Investments Appel would arrange to have Panzo
become a director of the public companies, and both Appel and Panzo would
own substantial amounts of shares in the public companies and cause the
companies in question to issue them stock and/or warrants for unspecified
consulting or investment banking services, or as finders fees in
anticipation of a contemplated merger.

For a dispute to be genuine, there must be more than "metaphysical
doubt." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574,
586 (1986). "If the evidence is merely colorable, or is not significantly
probative, summary judgment may be granted." Anderson, 477 U.S. at 249-50
(citations omitted).

Materiality is defined by the governing substantive law. "Only disputes
over facts that might affect the outcome of the suit under the governing
law will properly preclude the entry of summary judgment. Factual
disputes that are irrelevant or unnecessary will not be counted."
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). "[T]he mere
existence of factual issues — where those issues are not material
to the claims before the court — will not suffice to defeat a
motion for summary judgment." Quarles v. General Motors Corp.,
758 F.2d 839, 840 (2d Cir. 1985). "One of the principal purposes of the
summary judgment rule is to isolate and dispose of factually unsupported
claims or defenses. Celotex, 477 U.S. at 323-24. In view of the facts
presented here and the motion for summary judgment, it is appropriate to
grant judgment under Rule 56.

The Complaint Alleging Misrepresentation in the Size of the
Offering is Dismissed

The Stock Purchase Agreement contains 29 separate representations and
warranties and 16 separate covenants in favor of the series C
purchasers, including Emergent. There is no representation as to the size
of the offering. Waldron reviewed the draft stock Purchase Agreement
prior to closing and knew that no written representation regarding the
size of the Offering was ever made. Emergent has asserted that it
expected the size of the offering to be described in the Agreement, yet
Emergent proceeded with the transaction, executed the Stock Purchase
Agreement and funded its $2 million investment without requesting or
receiving any representation in that regard.

In Belin, as here, plaintiff Belin attempted to avoid the effect of an
integration clause in a written contract to purchase a limited
partnership interest on the basis that the clause was general and did not
specifically disclaim the representation at issue. Belin, 1998 WL 39114,
*6. Moreover, the information which Belin contended was misrepresented to
him, the amount of an insurance policy on Broadway actor Tommy Tune, was
readily ascertainable had Belin asked to see the insurance police prior
to closing on his investment. Id. at *5.

Emergent had access to financial information and other information
concerning Stonepath and represented and warranted that it "has had the
opportunity to ask questions and receive answers from the Company
concerning the transactions . . . and to obtain therefrom any additional
information necessary to make an informed decision regarding an
investment in the Company."

The authority cited by Emergent does not support reasonable reliance in
this case. For instance, in International Motor Sports Group, Inc., 1999
WL 619663 (S.D.N.Y. August 16, 1999) the court noted that when the
contract states that the defendant makes no representations other than
those contained in another, more exhaustive clause of the contract, a
fraud claim may be precluded. Id. at *6. The Stock Purchase Agreement
includes extensive representations, warranties and covenants from
Stonepath in favor of the investors, and is the product of extensive
negotiation and review by sophisticated investors. Emergent cannot
maintain a fraud action by avoiding the plain terms of its contract.

Finally, and most critically, Emergent has not established loss
causation. As the Second Circuit noted in Citibank, N.A. v. K-H Corp.,
968 F.2d 1489, 1495 (2d Cir. 1992), loss causation requires a plaintiff
to establish that the misrepresentation was the cause of the actual loss
suffered. To establish loss causation, a plaintiff must show that the
economic harm that it suffered occurred as a result of the alleged
misrepresentations. Id., see also Bennett v. United States Trust Co. of
New York,
770 F.2d 308, 314 (2d Cir. 1985) ("but for" allegations
relating to transaction causation do not establish the proximate cause of
the plaintiff's loss).

In order to meet its burden of proving causation, Emergent cannot
bootstrap the "but for" or transaction causation onto the loss causation
requirement. As with the plaintiff in Marbury Management v. Kohn,
629 F.2d 705 (2d Cir. 1980), Emergent must show that the
misrepresentation caused the loss. Yun's statement regarding the
inability to link the alleged decline of the share price to the alleged
change in the size of the offering is dispositive. No evidence of loss
causation has been presented.

Emergent's rescission claim, based on the mistake, is also deficient.
Under New York law, a remedy for mistake is available only where "a
mistake of both parties at the time [the] contract was made as to a basic
assumption on which the contract was made has a material effect on the
agreed exchange of performances." Hartford Fire Ins. v. Federated Dept.
Stores, 723 F. Supp. 976, 994 (S.D.N.Y. 1989) (citing Gerard v. Almouli,
746 F.2d 936, 938 & n. 2 (2d Cir. 1984) (quoting Restatement (Second) of
Contract § 152(1)). "The `mutual mistake' must be as to the very
nature of the subject sold — for example, where what both parties
believed to be a barren cow turns out to be a calf.'" In re the Leslie
Fay Cos., Inc. Sec. Litig., 918 F. Supp. 749 (S.D.N.Y. 1996) (citing
Sherwood v. Walker, 33 N.W. 919 (Mich. 1887)). In a securities
transaction, where the parties were not mistaken as to the subject of
their exchange — the purchase of stock — mistakes regarding
the terms of the sale do not warrant restitution. Leslie Fay, 918 F.
Supp. at 749; see also The Indep. Order of Foresters v. Donaldson, Lufkin
& Jenrette Inc., No. 95 Civ. 2568, 1997 WL 563348, *7 (S.D.N.Y. Sept. 9,
1997), aff'd in part, rev'd in part on other grounds, 157 F.3d 933 (2d
Cir. 1998) (where investor claims mistake, not as to essential term of
the contract — for example, what it bought — but a mistake as
to products' performance — "this is not the kind of mistake
cognizable under this cause of action").

Here, the record shows, at best, a unilateral mistake on Emergent's
part regarding the size of the offering. In order to prevail on this
theory, the party asserting the mistake must at least meet the same
requirements that he would have had to meet had both parties been
mistaken. Foresters, 157 F.3d at 939 ("as a basic proposition, a contract
is made voidable by either unilateral or mutual mistake only where the
asserted mistake concerns a `basic assumption on which the contract was
made.'") (citing Restatement (Second) of Contracts, § 152 and §
153.

In Foresters, 157 F.3d 933, the Second Circuit upheld the lower
court's dismissal of an aggrieved investor's claim of unilateral mistake
on ground the securities contract signed by the investor expressly
disavowed any legal effect for representations made outside of the
agreement. Foresters, 157 F.3d at 940. "Given the fact that . . . the
contract here expressly disavowed any legal effect for representations
made in the Brochures or Portfolio, they could not have constituted
`basic assumptions' as to which contract-avoiding mistakes could have
been made — either by [the plaintiff] or by the parties mutually."
Id. In this case, the equitable remedy for mistake is not available as a
matter of law. Where, as here, the final documents memorializing the
transaction do not confirm the alleged verbal representation concerning
the size of the offering, no mistake could have occurred. Foresters, 157
F.3d at 940. Moreover, since Emergent can attribute no portion of its
losses to the alleged mistake, as
a matter of law, the mistake cannot be
material to the transaction, thus defeating Emergent's final claim.

A court may not dismiss a complaint unless the movant demonstrates if
"`it is clear that no relief could be granted under any set of facts that
could be proved consistent with the allegations.'" H.J., Inc. v.
Northwestern Bell Tel. Co., 492 U.S. 229, 249-50 (1989) (citation
omitted); Hishon v. King & Spalding, 467 U.S. 69, 73 (1984); Conley v.
Gibson, 355 U.S. 41, 45-46 (1957).

In its first amended complaint, Emergent alleges the falsity of the
representation that NETV had invested $14 million in Brightstreet and
that it relied on that representation. This allegation follows the
discovery of the falsity by reviewing the NETV SEC filing on May 11,
2000. While Stonepath has resisted conceding the falsity of the Brochure
by suggesting that "Investment" in the Brochure was on different
valuation basis than required by the SEC, for Rule 12(b)6 purposes, and
probably in fact, the Brochure and its representation were false.
However, no mention of the Brochure appeared in Emergent's initial
complaint, thus undercutting its reliance allegation.

The dispositive issue, however, as it was with the allegation of the
size of the offering, is the effect of the merger clause. It will either
be read out of the transaction, or it will bar the representation outside
of the Agreement. For the reasons set forth above, the merger clause is
controlling and bars a cause of action based upon the misrepresentation
with respect to Brightstreet. That the Brightstreet misrepresentation was
in writing perhaps only fortifies the need to include it in the Stock
Purchase Agreement if it is to be a foundation for reliance.

Emergent's amended complaint also fails to establish the loss causation
pleading requirement. In order to plead loss causation, as required in
both the common law and Federal Securities law theories identified in the
amended complaint, the plaintiff must establish that the
misrepresentations were the cause of the actual loss suffered. Citibank,
N.A. v. K-H Corp., 968 F.2d 1489, 1495 (2d Cir. 1992). Mere allegations
that the plaintiff would not have entered into the transaction if the
misrepresentations had not occurred are plainly insufficient to establish
the proximate cause of the plaintiff's loss. Bennett v. U.S. Trust Co. of
New York, 770 F.2d 308, 314 (2d Cir. 1985). With respect to the claims
relating to non-disclosure of Panzo's past investment activity, the
plaintiff must establish a causal connection between the omission and the
injury. Tucker v. Arthur Andersen & Co., 67 F.R.D. 468, 479 (S.D.N.Y.
1975).

Emergent relies on the Second Circuit opinion in Suez Equity
Investors, L.P. v. Toronto-Dominion Bank, 250 F.3d 87, to argue that a
specific causal link between the alleged misrepresentations and the
alleged injury need not be pled if the fraud effects the "investment
quality" of the securities. Contrary to Emergent's argument, in Suez the
Second Circuit did not intend to excuse a plaintiff from pleading
traditional loss causation. Suez, 250 F.3d at 96 ("in sum, to escape
dismissal of a securities fraud complaint, the plaintiff must demonstrate
that the fraud caused the plaintiff to engage in the transaction and that
also caused the harm actually suffered").

The allegations at issue in Suez are more detailed than the allegations
concerning Panzo's prior investment history set forth in the amended
complaint. Emergent fails to aver a connection between Panzo's past
investments and the performance of Stonepath's stock. In contrast, the
plaintiff in Suez directly linked the misrepresentations concerning the
principal's personal and financial background to a decline in the stock
through his mismanagement of the company. Id. As a result of these
specific factual allegations, the Second Circuit concluded that loss
causation was pled because the plaintiff alleged that the defendants'
misrepresentations regarding the principal's background induced a
disparity between the transaction price and the true investment quality
of the securities at the time of the transaction. Id. at 98.

Emergent also points to paragraph 67 of the amended complaint in an
effort to establish that it has satisfied the loss causation requirement
with respect to Panzo's past investment history. None of the allegations
set forth in this paragraph, or elsewhere in the amended complaint,
establish the actual occurrence of any improper activity on the part of
Panzo or anyone else who is identified in the amended complaint. The
pleading is silent as to any actions on the part of Panzo that have
directly resulted in a decline in Stonepath's stock price.

While Emergent pled that the statements and omissions were a "proximate
cause of Emergent's economic loss and the decrease in the value of NETV's
common shares," there are no facts in the amended complaint from which
loss causation could be inferred.

Finally, with respect to Emergent's allegations concerning Stonepath's
investment in Brightstreet, there are no facts alleged from which it
could be inferred that the decline in Stonepath's common stock is
attributable to a representation in a brochure that the Brightstreet
investment was $14 million when, in fact, the investment was $4 million.
On the authority cited above, this failure is fatal to
the claim.*fn2

The Motion to Consolidate is Granted

Whatever tactical purpose motivated Emergent to start the Second
Action, the identity of parties and subject matter requires
consolidation. The consolidated action will bear the initial file number
and caption. The Second Action will be dismissed as well as the complaint
in the Initial Action for the reasons already set forth.

Leave is granted to file an amended complaint in the consolidated
action within twenty (20) days or within such other period as the parties
may agree. Failing such a filing, both actions will be dismissed.

Conclusion

The Stonepath motion for summary judgment in the initial action is
granted. Its motion to dismiss the first amended complaint in the Second
Action for failure to state a claim is also granted with leave granted to
replead.

Emergent's motion for consolidation is granted, and the actions will
proceed under the initial file number and caption.

It is so ordered.

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